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Seahawk Drilling Is for the Birds

Investors who don't like risk should probably sidestep this spinoff.

Spinoffs have a deserved place in the heart of many a value investor. Coach(NYSE:COH), once under the Sara Lee umbrella, is just one of countless success stories.

Seahawk Drilling(NASDAQ:HAWK), the mat-supported jack-up drilling rig business now trading separately from offshore driller Pride International(NYSE:PDE), certainly sports one of the criteria fellow Fool Nate Parmelee looks for in a potentially lucrative spinoff investment. Back in 2007, he dubbed it the "unattractive factor." As documented in my second-quarter earnings coverage of Transocean(NYSE:RIG) and other contract drillers, the market for jack-ups just plain stinks right now.

Before your inner contrarian gets too excited, let me just say right here that I don't consider Seahawk a very compelling investment opportunity.

Sure, compared with Hercules Offshore(NASDAQ:HERO), Seahawk looks pretty good. The company inherited no long-term debt from Pride, and the fleet boasts a higher percentage of rigs that are rated for at least 250 feet of water depth. That's the minimum rating that customers like PEMEX seem to require for jobs that are steadily moving further offshore.

That said, most drillers look good compared with Hercules. Ensco International(NYSE:ESV) has a significant jack-up component, with a major deepwater kicker. Ditto for Noble(NYSE:NE). All that Seahawk appears to offer is more concentrated exposure to the jack-up market. With natural gas headed lower in the short term, and drilling moving irreversibly into deeper waters, I don't see today's investors being particularly well-rewarded over a short or long time frame.

You can expect Seahawk's shares to be even more volatile than those of its peers, given the boom-bust nature of the shallow Gulf of Mexico drilling market. That will invite trading opportunities for those willing to try to time a recovery, but buy-and-hold types should probably skip this one.